The Startup – What is behind the name?

By May 20, 2017Startups
The Hutch Report

What does the word Startup even mean? I bet if you ask yourself this question you will probably quickly realize that you don’t have a straight answer. Yet the term is used daily in thousands of articles.  It headlines hundreds of events. Ask the question to 10 people and I am certain you will get a variety of answers.

Here are a few examples of the definition of a startup from various sources, including founders themselves:

A company that is in the first stage of its operations. These companies are often initially bank rolled by their entrepreneurial founders as they attempt to capitalize on developing a product or service for which they believe there is a demand. Due to limited revenue or high costs, most of these small-scale operations are not sustainable in the long term without additional funding from venture capitalists. – Investopedia

A small business that has just been started – Cambridge English Dictionary

An “organisation formed to search for a repeatable and scalable business model.” – Steve Blank and Bob Dorf

“A startup is a company designed to grow fast. – Paul Graham

“A startup is a state of mind,” – Adora Cheung, cofounder and CEO of Homejoy

“A startup is a group of people working towards a common goal, generally with limited time.” – Iqram Magdon-Ismail, cofounder of Venmo

“I think the first measure for a startup is: is it something new – a process, a product, a category, a business model, an ecosystem. No matter what it is, it has to have not existed before. – Ayah Bdeir, founder of littleBits

“A startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed,” – Neil Blumenthal, cofounders of Warby Parker

“It stops being a startup when people don’t feel as though what they are doing has impact.” – Russell D’Souza, co-founder of ticket search engine SeatGeek.

“You know you are a startup when you are a small, high-growth company, based on a big idea.” – Ariel Garten, cofounder and CEO of InteraXon

“A startup is a business idea that has minimal traction.” – Daniel Roubichaud, Founder of PasswordBox

“I think bootstrapping is pretty important to what makes a company a startup; “I think once you continue with a startup type methodology and culture, no matter how big you grow you’ll still be a startup at your core.” – Pat Phelan, cofounder of Trustev

“I think being a startup is more of a mentality than anything else. In the 1990s, during the first Internet boom, the term startup was new. “ – Matthew Salzberg, cofounder of Blue Apron

“Something that is a new product or a new market, with less than 50 people, with the intention of growing quickly to scale.” – Rob May, CEO and cofounder of Backupify

“A startup is defined by hope.” – Edward Saatchi, cofounder National Field

Well, if a startup were really defined by hope, then I would sure hope that your startup has a lot of cash in the bank! As you can see by the examples, the definitions are ambiguous and lacking consensus among many.

The truth is, the term has been overused and bastardized to the point where it has no meaning anymore.  It is kind of like the term Kleenex, a term that has become synonymous with a general class of product or service. The term startup has become a general term for a company with no real distinctions of where they may be in their lifecycle. In some cases the term becomes a philosophical reference.

The term startup actually came into vogue in the 1990s, during the bust of the first real Internet boom.  At the time we were calling most startups dot coms, until of course most of them came crashing down.  The term startup suddenly came into fashion, as we left the term dot com behind. At the time I remember being in a few discussions about Startups, however it seemed to be accepted knowledge that a Startup was a company in operation but had yet to generate any revenues.

As an example, I was working with one such company. We were financed by a variety of venture firms with, what totaled to be $17 million.  In the end, we did a few deals, or at least enough to enter into further agreements with our backers and reached 4 rounds of financing that kept us alive for about 3 years. We never managed to generate any revenues as a company.  We, along with many, ended up blowing up during the bust.

Revenues, at the time, were not important.  It was all about the user base, or eyeballs as they used to call it. This is why most of these companies remained startups and died as startups.  They had no revenue to speak of.

You can call it what you want and philosophize all you like but these are businesses. As a business you require customers and revenues to cover your costs.  If not you are quickly out of business; no matter how much money someone gives you. Therefore, it can still be argued that a true startup is one that has not generated any revenues and is still being held a float by venture backers.  Once it generates revenues, it ceases to become a startup, but a viable business concern.

When I began doing some research on this question about the term startup and wanting to understand what was considered a startup today, I came across an article in Forbes titled, “The Hottest Startups of 2014.” Here are a few examples at the top of their list.

Zenefits – At the end of 2014, the company released growth numbers that showed they generated $20 million in revenues. They had signed up 10,000 companies to use their service.

Thumbtack – Thumbtack does not release any revenue figures, however the company said that it was currently sending $2 billion worth of business to its professionals annually.

Uber – A leaked document showed that Uber generated $18 million in revenue in December 2013 in San Francisco alone. In total it is estimated that they may soon generate $10 Billion worldwide.

Cloudera – Cloudera’s official documents from February 2015 stated revenue for 2014 that surpassed $100 million.

Lyft – Stated estimated revenue of $130 million for 2014.

Pure Storage – Their IPO filing showed revenues of $42.7 million.

There are mature companies that have been in business for 20 years that don’t come close to any of these revenue figures. So is it fair to call them startups? It could be that by underestimating the challenge required to build a sustainable business, by getting too philosophical about what a startup represents in ephemeral terms, you are putting yourself at a disadvantage by losing sight of the fact that it is all about generating revenues, covering your costs and walking away with a profit at the end of each year.